 Management forecast errors and corporate investment efficiencyKelly Huang Journal of Contemporary Accounting and Economics, 2020, vol. 16, issue 3 Abstract: This paper examines the relation between management forecast errors and corporate investment efficiency. If managers’ forecasting biases systematically affect both external earnings forecasts and internal investment project payoff forecasts, errors in management earnings forecasts will be linked to corporate investment decisions. Consistent with this conjecture, I find that signed management forecast errors are associated with abnormal investment; specifically, more optimistic forecasts are associated with more over-investment, while more pessimistic forecasts are associated with more under-investment. Furthermore, I find that the link between forecast errors and abnormal investment is stronger when analyst feedback reinforces managers’ forecast errors and when managers display persistent forecast errors. Additional tests that consider managers’ disclosure incentives reveal that the link between forecast errors and abnormal investment is stronger when forecast errors are less likely driven by managers’ intentional distortions. Keywords: Management earnings forecasts; Managerial bias; Investment efficiency (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:16:y:2020:i:3:s1815566919300827 DOI: 10.1016/j.jcae.2020.100208 Access Statistics for this article Journal of Contemporary Accounting and Economics is currently edited by Agnes C.S. Cheng, P. Clarkson, F.A. Gul, Zoltan Matolcsy, Dan Simunic and Ben Srinidhi More articles in Journal of Contemporary Accounting and Economics from Elsevier |
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